S & P has issued warnings and downgrades to debt-bearing owners of Jacob’s biscuits, kettle crisps and many other well-known food brands as inflation eats up disposable income.
His agency downgraded Valeo Foods’ credit rating on Friday. This is due to the high debt levels and low profitability following last year’s leveraged buyout by US private equity firm Bain Capital.
S & P has raised Valeo’s debt burden estimate to nine times this year’s earnings, but said the company still has a stable outlook and is not facing refinancing risk.
“High operating cost inflation, the customary (albeit reduced) time lag in taking over price increases, and integration costs are putting pressure on Valeo Foods’ profitability,” S & P said in a research note.
“In addition, the capital structure formed in 2021 was already highly utilized, but debt levels rose following debt acquisitions.”
S & P said demand for ambient foods in Valeo’s product range, including brands such as Odlums, Kelkin and Shamrock, is stable, but consumers are declining disposable income in key markets in the UK and Ireland. I was watching you.
In a recent grocery survey, Kantar found that Irish shoppers were responding to 5.5% food inflation by reducing branded goods.
According to market research firms, the typical shopper’s sunbathing brand share exceeded 50% between 2020 and 2021 and then fell to 49% this spring.
According to S & P, Valeo has not yet realized the cost savings of its recent acquisition, has only achieved revenue growth in line with inflation, and its profit margin has not increased.
As a result, the company’s debt leverage fluctuated higher than expected this year, but the expected free cash flow decreased from € 40 million to € 50 million to € 10 million to € 20.
According to S & P, Valeo’s track record of price increases has given Valeo the peace of mind that it will be able to “hold down” margin pressure over the next 18 months.
Headquartered in Dublin, Valeo was founded in 2010 by the merger of Origin Foods and Batchelors by private equity firm Cap Vest.
CapVest has grown its Irish-only business into a major ambient food force for over a decade, making 17 acquisitions and increasing sales to € 1.1 billion in 106 markets.
The company was sold in May last year to Burger King, Dunkin and Domino’s Pizza owner Bain Capital for a € 2 billion deal.
